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Learning outcomes By the end of this lecture, you should be able to: Understand the integrated nature of business growth and how it is measured Discuss and evaluate the use of models of the small business growth process Discuss some of the factors that impinge on business growth

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Key Questions How can we tell whether a business is growing? Do businesses need to grow? What affects the growth of organisations? How can we model growth and is it useful?

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Start ups: A taxonomy Life style firms: – privately owned and support owners – modest growth – Typically micro business A foundation company – Centered on research and development – Creates new industry or changes entire sector A high potential venture – Rapid growth, – Innovative products/services in a large market – Large investments (Hisrich and Peter, 1995)

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A Social Enterprise Uses ‘engaged ethics’ buying cocoa beans from multiple growers The company’s sales have soared 226% a year from an annualised £533,000 in 2005 to £18.4m in 2008.

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Can we model growth? Life Cycle Models

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Principals of Life Cycles These theories suggest that small business growth characterised by a number of predictable, common, discrete and consistent ‘stages’ or ‘phases’ sequential in nature and occur as a hierarchical progression not easily reversed tend to be ‘metamorphosis’ models (d’Amboise and Muldowney, 1988) ‘Crises’ are an important feature – periods of relatively stable growth interspersed with periods of more rapid, discontinuous change

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The small business life cycle Size Age of business EvolutionCrisis InceptionSurvivalGrowthExpansion Maturity Stage 1 Stage 2Stage 3Stage 4Stage 5 From: Scott and Bruce (1987)

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What are crises? ‘growing pains’ (Steinmetz, 1969) ‘developmental problems’ (Kazanjian, 1988) ‘developmental ‘hurdles’ (Parks, 1977) Consensus that different problems during different stages of the growth process – sequential (Dodge and Robbins, 1992) Certain problems more dominant at certain times and sequential pattern to crises

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Greiner v Churchill & Lewis What similarities and differences can you see in the two models? Think about issues like linearity: is there any scope for backwards steps as firms in reality shrink and grow? Can steps be missed out, e.g. dot.coms can grow incredibly quickly? What about crisis issues such as a downturn in the market? What about firms that just never grow, or grow very slowly over a long period?

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Criticism of models of growth “Limited usefulness for the study of growth management since they are built on the deterministic assumption that all firms grow linearly through a predictable series of preordained stages” (Merz et al, 1994). Empirical studies confirmed that growth stages not discrete and highly specific Stages are fluid and non-sequential, with developmental problems often overlapping between different stages ‘Grow or fail’ hypothesis criticised. Small businesses often reach a plateau in their development and can remain in one growth stage for prolonged period of time

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Conclusions Variety of measures of growth – balanced score card needed No one single theory will adequately describe the growth patterns in small businesses (Smallbone, in Carter and Jones-Evans, 2006) Successful entrepreneurs need to be exceptional learners and adaptable to survive

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Key References and Further Reading Carter and Jones-Evans (2006) ‘Enterprise and Small Business’, Chapter 6 Churchill and Lewis (1983), ‘The 5 stages of small business growth’, Havard Business Review Greiner, Larry E., (1972), ‘Evolution and Revolution as Organizations Grow’, Harvard Business Review The Wall Street Journal, (March 2008) ‘Facebook CEO Seeks Help as Site Grows Up’ ?mod=blog ?mod=blog Storey, D (1994), ‘Understanding the Small Business Sector’, International Thomson Business Press, London Wired (09/06/07), How Mark Zuckerberg Turned Facebook Into the Web's Hottest Platform k?currentPage=2 k?currentPage=2